. welcome to today's "worldwide exchange." >> these are your headlines from around the world. >> imf down grades global growth saying europe and the u.s. needs to get their finances in order or risk further weakness. >> the euro trades lower as draghi speaks in brussels. the ecb president announces proposals to deal with risks from the banking sector. >> plans to make further proposals for macro policy particularly on vulnerabilities linked to bank funding. >> angela merkel faces a tough reception in greece as

protesters take to the streets. and alcoa kicks off what could be subdued u.s. earnings season. third quarter results of the s&p 500 are expected to drop overall snapping 11 quarters of gains. okay. good to have you back. >> good to be back. you were out, i was out, it was -- >> and i was a little worried about what you were up to, so i do admit, i had you followed. and my man, he sent me back this photograph. >> oh, no. >> that is you with the goggles, right? >> yes, that's me with the goggles. >> what's going on? >> that's my sister at the end there. so i was back at my alma mater

in virginia for my college reunion. part of that was -- >> to dress up and pretend you played lacrosse. why are you the only one with goggles? >> that's actually a relatively new addition to the game. when i started playing, we didn't wear goggles. but you get hit in the head a lot. supposed to be a noncontact sport. but because it was supposed to be noncontact sport, you didn't wear protective gear. but you get a little riled up, there's things flying. >> you have all thatting aggres out of you? >> i am wiped. this is saturday and i still can't really move around. everything hurts. >> coming up, plenty more lacrosse discussion. also we'll be in new delhi as geithner and bernanke kick off a two day visit. >> and we'll bring you the latest from the eurozone finance minister's meeting in luxemburg

and draghi's testimony before the european parliament in brussels live at about half past 10:00. >> and we'll also talk about the outlook of alcoa as earnings season in the u.s. gets under way. >> and the imf has cut its global growth forecast for the second time since april. . hot on the wheels of their own downward revision. >> the annual meetings for the imf and world bank kicked off here in tokyo today and the imf set the stage for fairly bleak economic outlook in 2012 and 2013. they issued their world economic outlook earlier this morning downgrading growth in the global economy to 3.3% in 2012. that forecast also downgraded to 3.6% for 2013. of course there are two topics weighing heavily on the 15,000 can delegates. one is the global slowdown and the second is the crisis in the

eurozone. i asked the chief economist at the fund about whether or not spain needs a bailout. >> at this stage the interest rates that they face are low. the question is are the interest rates low because investors expect spain to ask for a program, in which case spain will have to ask for one, or are they low because spain is doing all the right things and investors are not worried. so spain, if you look at what they're doing, they're taking all kinds of fiscal measure which is are courageous. so they're doing the right thing no question. >> also noticeable in this economic outlook is the downgrade in the forecasts to some of the key emerging economies. for example brazil and india. the fund says brazil's economy will grow at a slower pace than the united states and lowered outlook to below 5%. i had a chance to speak about you who he feels the indian

economy was shaping up. >> something common to brazil, china, india. and the effect is very strong when advanced countries slow down, exports really collapse. so the effect is there. and then there's a bit more. i think for china, it's supposed to. but india and brazil, dollar factors. a near paralysis has led to low investments. they're worried about the future. i think recently we can be optimistic on some of the measures that this will change, but this is home grown. >> central bankers, finance ministers will all be joining us live in our coverage in week at the annual meetings. and it's not just the annual meetings that are taking place in tokyo. a g-7 finance minister meeting, a g-20 meeting, as well, and japan is eager to broker a deal

for myanmar to try to get it past its debt arrears. and japan may pledge support for the esm and announce a purchase of bonds through that facility very similar to the support they showed for their predecessor, the esfs. so a lot going on with a lot of private sector economists flying in to town and some of the fringe events that are happening throughout the week and we'll be bringing you as much commentary from those individuals throughout the week. >> okay, she said she's there all week. joining us in the tud i don't, chief european economist at capital markets. thanks for joining us. the imf talking about the risk for recession alarmingly high and doing more damage than they thought. so how does that translate into either whether we should have policy changes or cha thwhat th means for investors? >> i think for investorses, you

have poor economic outlook. and on the other hand, the sense that the very big risks we're talking about over the summer, the break of the new area, early exit by some countries and what have you, that those risks have become smaller. i think the tension in markets is between those two. the idea of much less significant systemic risk is pushing the other. >> i just within der if investors haven't learned to zil whenever theimf zags. this is most notable in britd continue where perhaps it's saying the uk should dial back on its own usausterity. >> if you look at the long history, yes. but the imf has been pretty consistent in saying there's a wide range of policies which you

can use. fiscal one them. and also in the case of the uk still pointing to fiscal policies not really at a level that you can use -- >> but it's fair to characterize the imf as being bold if we take the example of greece. they were and they still are to some extent involved in these talks to promote austerity, talking about getting budgets down. when you come to a country like the uk, like the u.s. even, it has walked back significantly from this rhetoric that they need to do something about these large deficits immediately to make sure they don't harm growth. >> greece's case is a special one. they definitely need to do something on the fiscal front. imf has pushed the notion that greece needs debt restructuring. they're talking about whether there should be a delay. the imf has put on on the table

informally that there needs to be a debt restructuring. i think you're overreading what they're putting into the uk story. when they did their review, they said if the economy slows down, you might have to change policy. well, what else would you do? sit on your hands and wait? in general they have been pretty consistent in favor of the tight fiscal loose monetary policy strategy. >> do you expect, does rbc, expect another restructuring? >> greece will definitely have on to do restructuring. the question is do they get one as part of a deal or do they take one. >> worth pointing out george will be joining us later on set. meanwhile, the ecc president draghi has been vowing to back the eurozone. he's announced proposals be put ford to deal with bank risk in the first half of next year.

>> protests are take being operati taking place in athens ahead of a visit of merkel. merkel insisted she was also there to to offer the greeks her support. cath ly carolyn roth is in and thens. when i left, she was carolyn schobel. thank god it's roth now. >> thank god i got married, right? i'm extending my honeymoon. >> we know that's what the security is there for. >> right. i was going to say i was extending my honeymoon. i went to greece without my husband, though, one person who is not on honeymoon, that's ms. merkel.

she's arriving here as you said in a little bit more than two hours. and the reception here is less than luke warm because two biggest unions here in greece have actually announced they're going to hold huge rallies to protest her arrival but the police is putting in to applies an unprecedented level of security. the security hasn't been this tight since bill clinton visited back in 1999. 7,000 police officers are on duty and they've blocked off the city to the protesters because at any cost they do want to avoid violence flaring up. on it so it's now a red zone.

so police is on heavy guard because they'll have water cannons available, snipers are positioned around where the german delegation is staying. why is she coming now, why didn't she visit the two previous governments? because she knows hostility towards her is extremely high. remember for the better part of the last three or four year, she was seen as a scapegoat for the tough austerity measures that have been implemented here and that has led to the deep, deep recession in this country. well, she wants to send a message of support and solidarity about the reform efforts that have already been taken. but privately she'll be pressuring to say you have to continue with the reform efforts and we're not coming with any gifts. we'll make no further concessions. that will be her tough message as she comes here today. back over to you.

>> what's interesting is that maybe the timing of this visit there seems to be imf saying we need to have a maybe pretty big did you tell forgiveness. how hard will that be for the germans and fins and dutch? >> i think politically impossible. i think they're warm up to the notion in a they need to give greece more time. but that means money. that money has to come from somewhere. it certainly won't come from the emf. so the europeans will have to come up with more money. i think what they want in return is a greek government that at the least looks committed. >> have they changed their tune? this is the sense of the political game, at least look

like you're did go the right thing. say the right things aunts we'll gi and we'll give you the money. >> i think there's a real question even if the greek government is well intentioned, can they put their hands on the money. they have cut back in benefits and salaries to public employees. can they actually collect more taxes. can they actually reform the economy. that's the big unresolved questions. >> how close is greece being in an unsustainable position? they have moved in the right direction to n. regard to labor costs. is that enough of a difference? >> i think it matters a lot to their position now the debt has

changed the nation and becomes more political and less of a market issue. so i do think at some point there will be a plig group to show that they can sustain and for the europeans to realize that 180% debt to gdp is not sustainable at any point in the future. >> just a programming note, coming up, we will be joined by former greek finance minister geor george. and take a listen to what he had to say at the height of the greek crisis. >> we never asked nor are expecting any kind of a bailout. rear reducing the civilian growth program. it's a front loaded program.

>> we want basically a loaded gun to be on the table and hope we never have to use it. >> we're fully aware that this is a program that is not going to be easy. it is pot going to be easy on greek citizens despite the efforts that have been made and will continue to be made to protect the weakest in society. >> it certainly hasn't been easy and today of all days as greeks are in the street, what will he say now? stay tubed for that interview. we'll have it in just over an hour's time. >> meanwhile we are just over an hour and 15 minutes in to the trading day in europe. once again weighed to the down side. 7:2 at the moment. cac 40 is fairly flat at the moment. the ibex is just down nearly

about 8% as ya percent as you c. >> gilts 1.73%. no big news reaction at the moment it to the imf talking about the uk may need to ease up. george osbourne of course yesterday reiterating that they're on course. there may be some focus on welfare cuts as we go into the year. euro-dollar has gone a little weak this morning. we were around 1.30 just below this time yesterday. aussie dollar this time yesterday below 102, recovered slightly at the moment. that's on talk of china stimulus coming in. we'll get a view on that.

so what about the asian session? let's go to singapore. asian markets finished on a mixed note after peripheral debt concerns in europe raised their head again, but the shanghai composite staged a resounding rally. financials surged. developers also short of a tefr private sector survey showed a moderate rise in housing prices in september. strength in the mainland helped hang seng higher by half a percent. energy majors rallied on higher commodity prices. zte shares slipped again after the report of security concerns. more on that with our guest coming up. and cisco has ended its partnership with zte over its dealings with iran.

in the meantime the nikkei yuchd min undermined investor sentiment. automakers lost ground after sales slumped more than 40%. gains in consumers and health cares were countered by losses in steel makers and chemicals. in australia, miners september to a hike. and sensex now higher by 0.3%. back to you. >> the british chancellor george osbourne's proposed a controversial new scheme in which workers can surrender employment rights in returns for shares of the company they work it for. if the workers take the share, they will be barred from suing for unfair dismissal.

>> what would you do, would you take the shares and give uncertain employee protections and rights, or not? maybe this is our continental difference. i would take the shares. >> well, there's a number of factors into play. is the company stock going to be worth it. >> are you suggesting that nbc universal wouldn't be? >> no, but double factors. p first of all, is the company what you want. because it would be tax free. and then secondly do you back yourself as an employee to say i'm never going to -- i can always get a job somewhere else. >> would you take the shares or the protection? >> if i believed in the business i was working in and i thought that it was -- yeah, i'd take the shares. >> well, i do want to know what you would think about this. what would you take? >> i work for a very good

corporate bank and i would definitely take the shares. the problem with the proposal is it sounds like it's most relevant for employees in really big corporates. >> yeah, how many people are that. >> and if you're looking at small companies or start ups, how relevant would that be. >> right. we'll take a short break. we'd love to know your thoughts. also still 20 come, how legitimate are security worries over the telecom womequipment maker.

congressional report has called on u.s. firms to stop doing business with zte and wow way. the report was centered on allegations that the two countries are under beijing control and pose threats to national security. >> enterprise law requires a kfc china or walmart china or a wow way to allow for the existence for a communist party committee

within the organization. like the other companies, they allow for that existence. the communist party committee doesn't have any interaction with or influence on our business operation. >> both companies continue to insist their equipment is safe and poses no threat to u.s. tell wh telecom structures. joining us is director of global risk analysis for asia pacific. dean, are these concerns the u.s. is raising valid? >> well, i think some of them are. if you looked at the report, there were a number of issues that were raised. ip loss, protection of intellectual property, trading with sanction country including iran, business practices. but really the one underlying all of this explicit or otherwise, implicit, is the security of the actual systems

that wow way or zte might be selling in to the united states. and that really comes back to a trust factor and transparency of the organizations themselves. which they've been trying for many years now to improve, improve their receptive in certain fast growing markets including australia, india, western europe, united states, north america. and they've only been really i would say partially successful at that. i think the united states is not yet comfortable with a major telecom supplier having direct links to china. >> any sense as to why the telecom sector in particular is in focus given there are so many different ways where foreign firms may be perceive as a risk? >> well, i think you're right, but you have to also understand

that there are a lot of foreign firms involved in united states including very sensitive sectors like tell thlouisianth telecoms industry. so it's not really foreign or nonforeign. the question is one of tran transparen transparency. from what i've seen, huawei has done a pretty good job of trying to develop greater confidence in their products in a place like the uk market by investing in a large rchl and d facility and by being more open about at least to outsiders about the technology that they're employing and the reliability and security aspects of the technology. and they haven't been able to make that progress in the united states. and i think that's really the market that they want to crack. it's not the only one. they've been denied access in australia. but the u.s. is the big market that they want to crack so to speak and they haven't been able to do that.

it's not just telecoms. we've seen it also in natural resources. chinese companies trying to bid for oil and gas or mining resources in north america, not just in the united states, but also canada have been turned back. so there is definitely a distrust there of companies linked or based in china in a couple of key sensitive sectors. >> and we're seeing zte shares down 5.5% this morning. is that because this decision may end up impeding business not just in the u.s. for them but in a lot of western countries? >> i think that's true. they've done the best in emerging markets, so selling in to the africa and middle east and central asia and latin america and they really haven't expanded as quickly as they would like to in some of the developed markets. there's a lot of reasons for that, but part of it are these connections to the chinese government. zte is directly tied in terms of

ownership. huawei is private, but there are lingering concerns that they still have connections to the chinese government. >> thanks for your thoughts. coming up after this, we'll be live in brussels as mario draghi continues to address the european parliament. >> he's saying omts will help eliminate tail risks. more when we come back.

imf says europe needs to get their finances in order or risk further weakness. >> draghi speak in brussels, announcing proposals to deal with risks from the banking sector. >> further proposals for macro policy particularly on vulner acts linked to bank funding. >> angela merkel faces a tough

reception in greece. she's set to touchdown in athens shortly. >> and alcoa will kick off what could be a pretty subdued earnings season. third quarter results are expected to drop snapping 11 quarters of gains. >> trade deficit is bigger than we thought and manufacturing output down 0.7% on three month basis. we had the olympics. >> still getting the august figures out. august wasn't a great month. those september showing more traction.

sterling down against the dollar. >> so output and trade data not huge move. half percent lower. cac 40 down 0.2%, ibex down 1% at the moment. >> let's take a look at the bond market here. because after we saw the ten year spanish yelled, now seeing 5.78% moving a bit higher. interestingly the gilt is moving up 1.74%, although the bund still benefiting. >> euro-dollar been down to low 129 this morning.

>> silvia is in luxemburg. the next tranche of bailout is not a certainty. we're also seeing draghi talking about the ecb won't print money to rae placeeplace a lack of go change. is this a change in rhetoric or just more of what we've heard before? >> no, i don't think there's any change in rhetoric. the ecb has maintained whatever policies we're doing, whatever our monetary efforts are, it cannot replace politics. our policies cannot replace politics. and that's what draghi has been pointing out all the time. we also now that countries that have no access to markets, no access to any omt program from the ecb if it comes into action. the ecb has said that it's ready to go, that the esm is ready to

go or that the esm is there. it could all fall into place, but of course we need an application from a country and that's of course spain we're talking about to the esn before this whole ball can start rolling. if anything, i thought it was more optimistic or more positive because when we listened to the head of the euro group last night, he said he was very impressed i'm told with the efforts of the agreement government. they said, yes, more efforts need to be made, but i think this is more of the same thing so that they can't say it isn't matter what the troica report says, what you're doing or not doing, you'll get the money. it's more the rhetoric than the fact ultimately whether it's on the corridors here or whether it's in berlin, i think

politicians even of the opposition go with the assumption that degrees is going to get the next tranche and probably a troica report that's not so disfavorable. >> and have to ask you about the comments of the finance minister saying spanish don't need an assistance program. about you before we get into that, let's listen in i believe to draghi who is speaking in brussels. >> the ecb is ready to take the appropriate conditions what we call omt its. these would provide fully effective back stop to avoid destructive scenarios that might threaten price stability in the euro area. our omt announcements have

helped support financial market confidence. the ecb actions can help to build a bridge, but the bridge must have a clear destination. reaching that destination involves three processes. first, full implementation of fiscal consolidation and structural reforms to enhance competitiveness. second full implementation of financial sector reform. and third, please of an economic and monetary union. the establishment of a single super advisory mechanism is a key ten in this process. today i will review developments in july and explain in some tee tail the reaction nael aational

modalities of the omts and the building blocks of the financial market union. let me start with the economy. since our last meeting, the ecb has left its key interest rates unchanged. the deposit rate at 0%. the marginal lending facility at 1.50%. economic activity contracted in the second quarter of 2012. we expect weakening activity in the near term and only gradual recovery after that. the rates are on the down side

mainly related to the tensions in several euro area financial markets. average inflation in the euro area 2.7% in september reflecting indirect taxes and high energy prices. it should decline to below 2% in the course of 2013. underlying pressures should remain moderate given well anchored infliction expectations. outlook for price developments are broadly balanced. monetary analysis paints a picture consistent with price stability. in particular, the underlying pace of honest tar extanks remains subdued. loan dynamics are also subdued as a weak demand for correct,

but also restrictions on the supply of credit in some euro area countries. let me plain the decision by ex september on drought right monetary transactions. the impact on financial and monetary conditions of past reductions in key ecb interest rates differ considerably within the euro area. for example, in some countries, falling cuts in key ecb interest rates, the rates charged by the banking system for credit to the real economy has declined only a little if at all. in other countries, the ecb rate cuts have been fully passed through. one reason is the costs credit to firms is inevitably linked to

the cost of market funding for the banks themselves. if there are fears about potential key structure difference scenarios, the cost of funding for banks can be affected asymmetrically across the euro area.scenarios, the co for banks can be affected asymmetrically across the euro area.difference scenarios, the of funding for banks can be affected asymmetrically across the euro area. this means they have benefited to different september from past cuts in key ecb interest rates merely because they are located in different countries. it is that distortion in financing costs that hinders the functioning of credit markets and the transmission of monetary policy. it is that distortion which keeps some countries in what i have previously described as bad equilibrium and it is that distortion which falls clearly within our mandate to address.

to counter the impairment and to preserve the singleness of the ecb's monetary policy, the governing council decided to take outright monetary transactions. all the interventions provide fully effective back stop to avoid destructive scenarios that might threaten bryce stability in the euro area. the aim is to ensure the ecb policy stance is transmitted more evenly to the real economy across the euro area. the ecb will conduct omts if and as long as countries comply with strict and effective conditions attached to the appropriate program by the facility and stability mechanism.

conditionality preserves the privacy of our price stability mandate and ensures omts will not compensate for a lack of fiscal action. governments will continue with economic and fiscal adjustments. and only if the conditionality is fulfilled will the omts be successful toward moving the economy to what we might call a good equill will i be pre-up. omts are limited, but as i've just explained, they're notten conditional. unconditional. exit from omts would take place once their objectives have been achieved on when there is a failure to comply with the program. omts would not take place while the program is under review and

they would resume after the review period once program compliance has been assured. consistent with the treaty prohibition of monday tar financing, the ecb will only conduct transactions on secondary markets buying there investors and not from governance. government bonds will remain maturities of between one and three years. this is in line with the traditional focus of central bank monetary operations. the ecb will accept the same treatment as private or other creditors with respect to bonds purchased in the context of omts and the ecb will be fully transparent on its omts. well report weekly on total portfolio holdings and monthly on the average duration of our holdings and the breakdown by

country. let me now turn to the other topic you've chosen for today's exchange of views, namely the financial market union. the ecb welcomes the european commission's proposal for a single supervisory mechanism. which is very much in line with a statement of the euro area of 29 ths of june 2012. we're looking forward to working closely with the european parliament in this field. >> let's get some reaction to what he had to say about the omts. one to three year maturity, we kind of knew all that sort of stuff. the interesting thing is about how it actually works. because he's talking about we would exit an omt if they're not meeting the conditions or we assume it's working. how do you know it's working? because the definition is a

distorted honest takmonetary po banks are borrowing at different rates. >> i think the exit would only come if the country exits from a program with the esf -- sorry, now the esm. things have changed. so i don't think you can actually tie to the monetary mek nichlg because you can't identify precisely what the risks are. so i think that's it really. last week's statement, they linked their decision or their purchases to where the review was ongoing. as i read the statement, if it there's a review team in the country, they won't be purchased. >> and he said if you launch a program, we step back and review whether they're complying and it's working. they then stop the purchases. >> which is a particular process because even if the country is performing very well, you have on have a review, you have to have a team doing that. so it's a staccato program where

every now and then there will be a break. >> want to get silvia's thoughts. what tristrikes you? >> i had a number of problems with this from the word go and what i heard her only confirms that. if the ecb keeps insisting this is a purely monetary measure to fix the market essentially, how can they step in and out if a country complies or doesn't comply to an economic, to a political program. if the market is dysfunctional, the ecb should step in one way or another. i do understand why there are strings attached to it, but how can they let's say we have a completely dysfunctional market on spanish and italian bonds, spain has a program running, and then it's deemed that they don't comply with the program. how can they then step out of omts and say let the markets go to hell, we don't care, until you comply, we can't help you. i find that a very tricky statement.

as to publishing transparency, i think that's good news because this puts pressure on on the countries that might be under omt program as it were because if you see every week what kind of bonds the ecb has bought and at what maturities, that exposes the countries involved in the clear fashion. so i think that's -- the transparency part is good news. i was not and i am not convinced about the conditionality and how the ecb defines it. i think they're on very thin ice there. >> i agree with bits of that. i don't think the big issue is if someone doesn't comply with the program, if you were in the situation where you had bought greek bonds and you're looking at what they would not be doing, i think that would be reasonably clear cut. the problem is whenever there's a review, then we'll start buying which gives it this purchase program a very strange rhythm. and as we said, it doesn't look like it's a market intervention,

it looks as when a commission team is landing in a country. that doesn't make a lot of sense. >> they dressed it up under market monetary transition mechanisms to justify when we all know it's something else. >> i generally believe they do think this is an important market intervention, but obviously they have on get their backs covered and i think it's becoming ever clum sclumsier. >> thanks for all your thoughts this morning. >> by the way, when does spain go into an assistance program in. >> that's a very good question. i think somewhere just after the regional elections. p. >> thanks for that and to silvia, as well p. plenty more to come.

geithner and bernanke are in india today. what's he been saying? >> geithner's on the agenda, he

met finance minister and as well as the head of the capital market strategy. what was discussed basically focused on the quantitative easing. several emerging countries raised concerns on inflation because of qe-3. concerns over the quantitative easing were expressed. also monetary fiscal policies was discussed. india has had to take a series of reforms most importantly a hike in the itf. so they're looking for high foreign investment especially the u.s. and geithner has given a thumbs up to the reform process. tomorrow u.s. fed chief ben bernanke will meet the governor, that is a key meeting because it is the first u.s. fed meeting

with an rba governor. back to you. >> thanks for that. >> wayne, your thoughts broadly speaking as we look at all the reform measures. will they succeed in making investors more comfortable with the nation's economy? >> i think they already have made investors more comfortable with the which i. whether they pan out and turn into more investment or not, we've already seen a raft of reforms. w4e when his appointment was mooted, stocks had a terrific rally. >> what from here will be important for investors when they think about catalysts for the next move higher? is it india specific, global

growth? >> both. i think the environment for policy makers in india has become much more forgiving. i think better bernanke will try to ease their concerns about quantitative easing and inflation, but it will make investors much more interested. there's also been --quantitativ inflation, but it will make investors much more interested. there's also been --to ease the quantitative easing and inflation, but it will make investors much more interested. there's also been --ease their quantitative easing and inflation, but it will make investors much more interested. there's also been -- what surprised them was how little money moved out. we saw very little selling in stocks by foreigners. that money has all come back in now. a the lot of sovereign wealth money that comes in and i think people are buying the long term growth story of a country that is very young and still growing. so if policies stick from here on out, i think that the economy will do a lot better. but investors will be looking to see that, they'll want to see some traction where they can produce investment, where they can boost corporate profits and whether gdp will recover. the imf just lowered it estimates to below 5%. very painful for india. but from the investment perspective, things could be looking up from here.

>> just makes you wonder do you think india has a 10% growth quarter left? >> i think it will be a long time before india comes back to 10%. i think we would have to see a lot of bottlenecks before that happened. i wouldn't expect to see that at least not a year and farther out than that, i wouldn't want to see. >> all right, wayne arnold, thanks very much for your time. i guess it's the evening for him over there. when we come back, the latest news out of the bae/eads merger and also live from luxemburg.

if you're just joining us, i'm kelly evans. >> and i'm ross westgate. >> the imf says europe and the u.s. need to get their finances in order or risk further damaging the world economy. >> draghi announces proposals to deal with riskses from the banking sector and defends the ecb new bond purchase program. >> interventions in government bond markets provide a back stop to avoid destructive scenarios that might threaten price stability in the euro area. >> angela merkel faces a tough reception in greece as

protesters take to the streets there. >> and alcoa kicks off what could be a subdued u.s. earning season as third quarter results from the s&p 500 are expected to drop overall snapping 11 quarters of gains. today is the anniversary on which the dow jones touched its all-time high, i think 14164 was the level there. we're just about 4% off that peak which if you think about it in context of where unemployment is today, not only in the u.s. but worldwide, is pretty impressive. the naz tack, nasdaq and s&p 500s also pointed lower. alle company a will report results unofficially kicking off earnings season. we're expecting to see earnings declines for the first time in nearly three years.

weakness in the ftse, down about a quarter of a percent on industrial production figures. but also kind of just in negative tone across the board this morning. ibex 35 now down about 1%, although pairing losses. >> when you were back, i hoped you had better news. >> this is quite fitting. i come back, markets are down. >> as far as bond markets are concerned, not much of a big turn. spanish ten year yields still below the 6% mark. ten year gilts manufacturing

data coming much weaker than expected in the month of august and trade deficit widened, as well. sterling-dollar you will see if we move the wall on there that now down to 1.60 flat. kelly is very pleased with that move. aussie dollar, a little firmer against the u.s. dollar. people thinking we might get more chinese stimulus measures. how have asian markets performed? let's go to singapore. >> thanks, ross. a mixed day of trade for asian bourses amid renewed concerns over europe's debt crisis. but the shanghai composite

staged a strong rally on the liquidity injection and also renewed easing hopes. financials surged after icb said the government has boosted holdings in the bank. developers also soared after private sector surveys showed moderate rise in housing prices in september. shares in hong kong finished higher by about half a percent. shares slipped after the. >> reporter: on security concerns. the nikkei underperformed after yesterday's holiday lingering concerns over corporate profitability. sharp shares tanked nearly 15% after goldman sachs downgrade. automakers also lost ground after sue sue suzuki's sales

ended in the red. losses in steel makers and chemicals. the sensex still higher by half a percent. ross, back to you. >> the latest of course on the bae/eads deal that we're all watching, ceos are expected to discuss the menrger strategy later take. just a day left before the deadline on this deal. reuters quoting the british defense secretary saying they will discuss the proposed mernl merger. the company hasn't decided whether to ask for an extension of time or not. >> hard to imagine they won't. >> absolutely with a deal this size with so much still to be

worked out. the imf, though, saying the global economic slow down is worsening as it cut its slow down for the second time since april. u.s. fiscal cliff is one of the top issues. here onset with us is chris whatley from long view economics. welcome. do you agree with the imf this is something everyone should be worried about? >> absolutely. there is a lot of risk in the global economy at the moment and fiscal cliff is clearly one. but in some shape or some form depending on the outcome of the election, there will be some fiscal timing into the states next year. china is disappointing, euro remains in recession and the industrial side of the states is in a recession, as well. so it's will that as if the major regions of the world, the u.s. consumer is the only thing surprising to the up side. >> so what measures in particular do you expect to go away at the end of the year and

what impact will that have on consumers? >> it's difficult to know the three elements of the fiscal cliff package which will remain, which will come into play straight away. and it will fend i think upon the way the house, the senate and the presidential election turns out. whether we see a move towards the republicans perhaps gaining the senate as well as the house or indeed perhaps even the presidency, as well. although of course it doesn't look that way at the moment. but if it stays as it is, i expect some of the george bush tax cuts will be allowed to expire because republicanses will have lost a little bit of political underpinnings, but we should have to see. >> i think goldman had noticed pointing out just the impact of that alone would be equivalent of a ten percentage point drag

on gdp. and when you're talking about an economy not even growing 3%, this is a significant hit. and if the u.s. is driving the world's economy, the loss of that will be felt. >> i think that's absolutely right. it's the worst recovery in the u.s. post level two and gdp is just about 2. so if you put a hit to the consumer where the only strength is left, clearly we have a problem this terms of the global economy. >> the strain it might have on finances, the political strain it would take, it's not clear that even the democrats have room to maneuver if they would like to continue some of these things. and now the imf out this morning saying at the same time, the u.s. should be worried about it debt situation. so it's kind of talking out of both sides of its mouth. >> this is classic post financial crisis. no easy way out. eventually you have to take some hard decisions. you can't delay them forever. so maybe next year we'll find that coming about. >> and today is the fifth anniversary of the dow hitting its all-time closing high of 14,164 and we're crust 4% away

from that mark. s&p also hit its all-time high, 109 points away from that. so when you layout that economic scenario and then you look at where equities are trading, which one turns first? >> let's not forget we've had a cyclical bull run. the u.s. economy has expanded for 39 months which in fact is the average length of the economic expansion since 1854. and i'm not surprised we've had a good run. that's the way it should have been. i'm suggesting that we are at the end of that run. so next year there is an increasing risk that we enter a cyclical bear market. >> so you think this keeps going to the end of this year. >> on a month by month basis, we're just about still with the rally. but if i'm looking six to nine months ahead, i'm getting

increasingly nervous. >> and want to raise the notion if you look at base money variables, lending growth in the u.s., those started to turn say earlier this year, maybe into the summer, that's one reason why people look into next year and say maybe there are underpinnings in place to support equities even though we have this kind of muted earnings and growth outlook. >> as we said at the start, u.s. consumers look very good. housing has real momentum in america and auto sales and the consumer. but we could put a sharp fiscal tightening on it and that is the area of strength left in the world's three major regions. so if you kick that leg away, it doesn't have any legs. >> but if you leave it there, suddenly things could look better. >> and that's the variable. >> do you believe in the lame duck session achieving anything? >> certainly sounds like there's rumblings behind the scenes.

let's hope they do. >> also alcoa of course will kick off u.s. earnings season. the first dow component to report results after the close today. expected to just about break even after earning 15 crepts a share in the year earlier period. the company hurt by lower aluminum prices for that and other melgts. although it is selling more high tech alloys and specialty parts. alcoa shares did gain almost 2% and ceo will be on closing bell today at 4:00 p.m. eastern to discuss the results. >> meanwhile a new report suggests any turn around in the banking sector is some way off. few banks around the world possess a business model that's needed to generate sustainable profits. slow growth, rising costs and rising online based competition are the challenges.

and facebook wants you to not just like it, but want it. they're teaming up with several retailers including michael kors and victoria secret to test a want button. users can create a wish list of products. facebook shares did fall almost 2.5% on monday, but trading above the 20 buck level and i guess the question is whether the want button becomes as widely used as like. >> i want a yacht, i want a ski chalet, i want a helicopter. does not mean if i put that on, i just get those is this. >> you'd think if anything, i know this has been controversial, but that they would do something more oppose. a dislike or -- >> that's a bit negative. >> they have to commercialize it. >> drives me crazy. >> talking of want, if you've ever wanted your own sports team

or arena, it's time to search between the couch cushions for loose change because reports suggest the auction of the staples center. they're seeking bids. $10 billion. >> i believe they also have big contracts with celine dion. so if you're a fan, could you get a private contract. looking for my checkbook. still to come, u.s. treasury secretary timothy geithner is in new delhi. we'll bring you the details. bob... oh, hey alex.

just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners.

these are your headlines. the imf down dwrgrades global growth. >> merkel face as tough reception in greece. >> and alcoa kicks off what could be a pretty subdued u.s. earnings season.

>> so his way to tokyo for the imf world banking meeting, geithner and bernanke have been in india for the third annual meeting of the uts india economic and financial partnership. what's interesting is india now new finance minister that's been coming back in.what's interesti new finance minister that's been coming back in. and imf just downgraded their growth to 5%. what happens now for investors in this country? >> i think india is very interesting. it's had a political paralysis and we've tried to put through the retail before and of course it looks like it's going through now. stock markets responded well. rupee has responded well which is critical given the imports of oil and costs and so on. so i would be optimistic.

india is the one part of the world where the growth outlook is more optimistic rely it difference to expectations. >> the whole narrative that emerged about how india was the new china and this was the population to watch. do you think we'll start to hear that again? >> i buy india for my kids. so i think india has a great long term future. it's 12 years behind china. >> the story at the moment for any global investor is it's the politics. makes it really hard when every investment has to take into account a large political die mention. >> it does make it hard, but of course we're quite negative on politics at the moment. so quite a lot baked into the price. sense about so more up side risk than down side in my opinion and of course there's an election coming up in 2014 in india and we may get a more reformer's government in place than we have

today. so i would, optimistic on india. i wouldn't call it the new china because it's doing it a democracy, hard to do it with democracy, but takes good growth story. >> let's get over to india. joining us from new delhi, she's been looking at what mr. geithner has been saying. >> on the first day today, he met the finance minister as well as the rbe governor. both the u.s. and india are keen on trade. second was the reforms process that india has. geithner has given a thumbs up to the opening up of fti in retail and insurance sectors and has said it promises to be good for india's growth story going

ahead. also tomorrow better ben bernanke will meet the governor and more discussions of qe-3 are likely. india has criticized qe-3 for smiking commodity prices. so that will be discussed tomorrow. back to you. >> thanks very much for that. stick around, because next we'll head out to athens where angela merkel is scheduled to meet her greek counter part.

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the dow is looking to shed 33 points at the open. >> yesterday was columbus day holiday. draghi has vowed to battle a build up p bank risk in the eurozone. in testimony he announced proposals would be put forward to deal with bank risk and has defended the new bond purchase

program. >> interventions provide a fully effective back stop to avoid destructive scenarios that might threaten price stability in the euro area. >> and luxemburg dominated the meeting. troica said its next traennche still not a certainty. >> sylvia, not a certainty, but was greece looking for more? >> if they're saying it's not a certainty, they have to say that. otherwise they would say it doesn't matter what the troica reports, they might as well go to a greek holiday, we'll dispense the money anyway. but the other mood music we got out of the meeting last night was very clearly he said he was impressed with the efforts and the determination of the greek

government. so there was a lot of positive remarks and positive feeling an yet there is still of a bit of a fiscal gap that has to be closed, but progress is being made. so my educated guess is that once the troica report is on the table, they will say whatever the greek government could do it has done and there will probably be time relief somewhere down the road because that's the easiest thing for merkel and others to push through. others have gotten that cou courtesy, why shouldn't others get. >> draghi said we're collectively thinking about issuing minutes from their meeti meetings. long overdue? >> yes, long overdue in a way. but the ecb defense line has always been because we're a young central bank, we're not the bank of england, we're not

the fed, we want to keep the pressure out of the governing council and we don't want to have somebody put in the corner and say you voted against your country. we think the greeks are automatically doves and italians and spaniards and austrians and germans are always the hawks. i know for many people it isn't like that in the discussion. we know it's a very clear discussion in terms of omts and bond purchasing. so i think so the timing of publishing minutes might not quite be the right one, but other than that, yes, it's probably long overdue. >> meanwhile protests have been taking place in athens ahead of that visit by angela merkel. carolyn is there, she's not mrs.

roth, as well. anyway, carolyn, what time is angela administer kell arriving and what reception will she get? >> she's arriving in about one hour's time. the protesters have turned up the music, they're chanting and the square is very slowly filling up but still very peaceful. no violence breaking out. but more police are lining the streets. they're wary of the violence. so police have some 7,000 officers on duty to make sure that this trip of angela merkel, which is historic, highly

symbolic cone will not be destroyed or will not have a bitter after taste. so the hope is that no violence breaks out and that they'll be sending a message of support and of solidarity to the greek government. >> thanks for that, mrs. roth. chris, final word from you. whatever happens, does greece have to have a big debt write-off? >> clearly. the dynamics are not clearly sustainable. and it needs to be dealt with properly. >> good stuff. chris, thanks very much. up next, we will be speaking first on cnbc to george pap coi.

these are your headlines from around the world. >> the imf down grades global growth, says europe and the u.s. needs to get their finances in order or risk damaging the world economy. >> mario draghi announces proposals to deal with risks from the banking sector an defends the ecb new bond

purchase program. >> interventions in government bond markets provide fully effective back stop to avoid destructu destructive scenarios that might threaten price stability. >> angela merkel faces a tough pre-excepti pre-exception in greece. >> and alcoa kicks off what could be a very subdued u.s. earnings season. the doe expected to snap 11 quarters of gains. >> today #% below the all-time high it reached 14, 164 five years ago. amazingly enough given what other factors are doing today,

you might not have thought it. dow implied to shed about 33 points. similar magnitude of losses for the other indexes. alcoa will unofficially get things in to gear as it reports after the bell today. european markets are also in the red this morning. we'll start over here, the ibex 35 in spain down better than 1%. we saw weakness in the european bourseses yesterday continuing today putting some upward pressure on bond yields. and on that note, we'll keep in mind whether there's anymore significant reaction to the words we heard from draghi this morning. >> so what are investors to do? here's a recap of what some experts have already told us today. >> there have been big gains to be made, but we would still say that the safest strategy is to

be invested more in core markets. >> i like the dollar really. it's a little bit undervalued at the moment. the aussie dollar and canadian dollar look to me to be a bit overvalued. >> if you want something which is a relatively safe i think within the beverages market, i think what it's doing, asia continues to make it one of the better players in the market. >> protests have been taking place in athens ahead of a visit by angela merkel. merkel said she would reinforce her message of reform while in athens, but insisted she's also there to offer the greeks her

support. joining us now is george papaconstantinou, greek energy minister and former finance minister. welcome. >> good to be here. >> october 2009 to june 2011, some of the most significant measures that we've seen come out of the greek economy in terms of austerity as angela merkel heads there today, what is the relationship, how would you expect the greeks to react to her presence is this. >> the chancellor is visiting a country which is in a deep recession. greek economy stopped growing in 2008 and by the time to starts growing again will have lost one quarter of greek gdp. that's huge and of course reflected in unemployment. so she's visiting a country which is going through a very tough period which has undergone by all accounts the harshest

austerity program in any coun y country. >> what is the relationship between the greek and german governments? >> there is a close working relationship and i'm glad to hear from the german side recognition of the effort and results since the beginning of this whole story in 2009. >> there was a period last year when it came out we are prepared it to let greece leave the euro. do you think they generally meant that or was that political gamesmanship? the statement seems to be we want degregreece to keep them i euro because they're worried about contagion to spain. >> i think people were thinking that you can quantify and deal with a greek exit and i'm glad

to see that that view has been defeated. at the moment, it is certainly the not the dominant view. there is no such thing as an orderly exit from the eurozone. any exit would be extremely disorderly. so chancellor merkel i think has been convinced of that and has changed her rhetoric and i think it's good to actually admit and appreciate the effort that's been done, push for more, but be much more supportive -- >> that leaves an interesting situation because clearly the debt dynamics in greece still don't add up. they're 100% debt to gdp, no growth. it's sort of a hopeless situation. and he said we actually need in the end we'll need large debt forgiveness. so is that actually what we -- and if that's what we need, the question is are european

partners going to come around to that viewpoint. >> latest imf figures suggest that the debt will peak at 180% of gdp before going down and that the original plan of taking 120 by 2020 is now too optimistic. so clearly those numbers are not viable. so clearly something would have to be done. and my view is that this would have to be done from the official sector because the private sector -- >> meanings the holdings the central bank has. >> and one clear way of doing it would be to take the bank recapitalization money off the book, off the debt. there are also other ways. i understand some of the institutional programs for example the ecb has, but if we recognize there will have to be some movement on the debt -- >> what do you mean by taking the bank recapitalization off the books? >> based on the latest decisions

in terms of direct recapitalization of banks from the institutions that have been created and not via the greek -- >> which is what the spaniards are basically trying to do. >> that's right. the seame thing. >> i guess it would be great if we could take all of this off the books. there's a lot of different pieces they're trying on chief off of, but this is an economy that's still slinging that still has serious unemployment and social issues to confront. >> but it's not a vicious circle. why is it shrinking? people still think greece may get out of the euro and there is no liquidity because banks are undercapitalized. of course it's shrinking. so unless we to something abodo there's no way we'll get out. >> no investor will decide i'm going to put big money into greece until they know the occurrences city risk is off the table. how do we get that off the

table? >> i have always argued that whatever we do, unless the bigger problem is solved, whatever we do is not going to be enough. so we now have significant moves to solve the biggest problem, moves toward banking union, moves towards some kind of debt mutualization slowly. and i think these need to be accelerated. that's the only thing that can get the currency risk off the table. if you talk to investor, they'll say it's getting very interesting to be this greece because asset values are more logical levels because they can see the up side coming up. but they're still waiting for some signal. >> risk of a 0 40%, 50% devaluation. >> we'll talk more with george papaconstantinou after this break. so stick around.

these are your headlines. the imf down grading global growth and warning europe and u.s. should get their finances in on order. mr. george papaconstantinou

tells us there's no such thing as an orderly exit from the and you are row zone. and alcoa kicks off what could be a pretty subdued earnings season. >> george papaconstantinou is on the set with us and we're talking all things greek. >> if we're going to get an extension on the program, we'll have a funding gap. there is a sense here that we're playing a political game .on the one hand, we've said germany would like to keep greece in the euro. on the other side is greek government has to say we will do x, y and z. is this just a game? because implementation of it

seems rather difficult. so are we just pre-tenting here because we all know no one wants greece to leave the euro. >> i don't position we're pretending. inch ple menation is difficult especially when you get into the structural reforms that need to be done. but it takes time. you cannot expect an immediate impact on growth. it won't immediately show up in the pooks when you have a recession of 7%. it's slowly being improved. at the same time asking of people whose wages have been cut 40% to work in a different way than they used to before. so these things do take some time and it's important to have some support as we have in

terms -- >> what happens by october the 18th sha? because they're saying we want all these 89 promises or whatever -- >> none of the 89 have been done. most have already been implemented. so what he's saying is finish the job and then we'll sign on. clearly quid pro quo. however you have to think of what is necessary to minimize the impact of the recession and get greece out of it faster. and there we're not paying enough attention. >> and greece is caught in the negative cycle. if you go back to the period when you were finance minister, along with the imf and basically

every western official out there saying to the greeks we need to do this, adopt these measures so we're better in the long run. the choice is between collapse or salvation. it this doesn't look like a lot of value vasalvation today. would it have been better to have gone a different route? >> some be would have to explain to me what a different route would have been. >> let's say you left the euro day one, would that have water been for the greeks some. >> no, infinitely worse. comm declaring unilaterally bankruptcy and defaulting on our debts would have put the economy back put the period back to the 60s. any other route than that would

have been worse. however we could have done it in a better way with certain decisions that need to be taken faster and in a better way. >> and is it then the reaction pie the germans or by other officials involved, even officials in washington where there should have been more of a recognition or more aid to greece despite the fact it was heavily indebted? >> i think for a very long time, the moral hazard issue was in everybody's mind and for a very long time, the popular sentiment of a country that is not carrying its own weight was dominant. and glad to see that this is now changing at least on the official side. i'm afraid too long we went that way and it's now important to educate those of public opinion in europe because the average taxpayer thinks that his money has been lost. that's not the case.

in fact the biggest beneficiaries of the whole eurozone have been german taxpayers. >> if this current coalition doesn't work out, where does it leave the minute stream parties this is greece? >> the my owe nazi marty which hopefully thinks hitler is historical who has not been judged yet by history is third on the books. so that's a very dangerous, extremely dangerous evolution. i'm glad to see the current prime minister has taken a 180 degree turn. what is important is for to

continue what we started and prove that greece can get out with the help of our european partners. austerity by itself is not enough. >> just to be clear, greek people, any movement at all to say it's the euro that's causing this problem and austerity as opposed to -- i know you think it he it's the german, but if they weren't in the euro, they wouldn't have german imposed austerity. is be in making a choice between euro and austerity? >> consistently strong majority in favor of staying in the euro. >> whatever the cost. >> it is slightly less than it used to be. perhaps what is not always you said stoot is what you need to do it stay in the europe. you need to be able to have an economy that's competitive. and remember in 2009, we had a 16% deficit, a debt of 10% of

gdp. that was not a sustainable situation and climbing down from that was going to be painful, whatever way we chose to do it. >> great to see you. thanks so much indeed for joining us and explaining to us the situation. really good to talk to you. >> and stick around, because still to come, strike up the band. it's the parade of u.s. earnings reports. they start with alcoa's results. will investors be singing a happy tune? we'll preview what to expect. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, happy tune? by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good.

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investors are bracing for what could be a rocky u.s. earnings season. profits for the third quarter are expected to drop about 2.6% from the same period last year,

this according to a survey. and john butters is joining us. put the figures in context for us. this calls an end to the 11 quarter profits boom. what's the significance of that? >> as you said, current expectations is for a decline of 2.7% and this is really shaping up on toen would have the weakest earnings seasons we've seen in terms of growth. >> at the same time we already know that markets will be pricing in the downward revisions all throughout the summer explaining some of the weakness there. how important is alcoa's results today in terms of what it means for the rest of the sector? but also it's fourth quarter into early 2013 that has

people's attention. >> if you look at the third quarter numbers, two sectors driving the weakness are materials sector, down 22%, and then the energy sector where expected to be down 20%. those are the two drivers of the decline in earnings. but interesting that while we've seen estimates come down, the market was actually up during the course of the quarter and part of the reason for that could be that analysts are expecting somewhat of a hockey shaped recovery where earnings are expected to be down 3% in q3, but bounce back to almost 10% growth in q4. >> how much of an indicator is alcoa? is in a any lead on how the rest of the season goes? >> we did a study on that showing if it had any predictive qualities. and in terms of how the rest of the index perform, it's really not much of an indicator. however, if you look at how how

alcoa performs in terms of the price index, when alcoa beats, the market has been up 75% of the time. when it misses, it's about a 50/50 proposition whether the market is up or down. so the market definitely tends to respond rely. >> will forward earnings help or hurt going forward? >> again, it looks like one of the drags on earnings this quarter will be the global situation. weakness in europe, slower growth in china, less favorable foreign exchange rates. all those will negatively impact earnings this quarter. >> okay. john, perhaps not a huge surprise. but on the fifth anniversary of the dow hitting its all time hey, we'll see whether the positive energy keeps going. >> "squawk box" is up next.

today's top stories, the emf cuts global growth forecast for the second time since april. plus we're watching the oil markets. the saudi oil minister says prices have come down now to adequate levels. and greece is the word. angela merkel visits athens today facing protests by angry greeks. it's october 9th, 2012. "squawk box" begins right now. good morning. i'm becky quick along with joe kernen and andrew ross sorkin. and among the story it is